InvestorQ : Why did the rupee fall so sharply to 80/$ and what could be the sectors impacted by this fall in the INR?
Moii Chavate made post

Why did the rupee fall so sharply to 80/$ and what could be the sectors impacted by this fall in the INR?

Tisha Malhotra answered.
4 weeks ago

The rupee has weakened from 74/$ in January 2022 to 80/$ in July 2022. That is 8% fall in the rupee and that is hardly normal. Here is what has driven the fall.

· Foreign portfolio investors have withdrawan over $35 billion of money from Indian equity markets since October 2021, putting lot of pressure on the INR.

· Fed Hawkishness is a big reason. Higher rates makes dollar assets more attractive and therefore it has been consistently spiking the dollar index, or the Bloomberg DXY.

· Commodity inflation has been a major issue and India is especially vulnerably to oil imports. Now the current account deficit is expected to spike to 5% of GDP in FY23.

· Not to forget, today there is persistent dollar demand from OMCs and pressure from dollar borrowers in last minute rush to cover their dollar open positions.

Here is how the various Indian sectors would get impacted by the rupee fall.

· The OMCs which has huge oil import payables will bear the brunt. With restricted free petrol and diesel price setting, OMCs most likely to come under margin pressure.

· It can be a tough call for banks. Weaker rupee imports inflation and means higher yields. That would force the banks to provide for their bond portfolio losses.

· Then there are the import intensive sectors like capital goods, gems & jewellery and chemicals with a strong import content.

· There are positives too. IT gets over 60% dollar revenues. However, the downside risk here could be a slowdown in tech spending and cross currency risks in Europe.

· Pharma could be the positive joker in the pack. It is still predominantly US market driven, although Chinese supply chain constraints could be a challenge.

Overall, you can expect a mixed bag. At the end of the day, weak rupee boosts exports and the game plan will really matter in this situation.